Causes and Consequences of Variations in Audit Committee Composition

Klein, April

doi:10.2139/ssrn.221779

Cited by 12 publications

(8 citation statements)

References 46 publications

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“…The idea that other governance mechanisms can serve as substitutes for external auditing is consistent with the assertion of the U.S. Blue Ribbon Committee on Improving the Effectiveness of Corporate Audit Committees that auditing is but one piece of the firm's overall corporate governance. Also, Klein (2000a) In contrast with U.S. and U.K. corporations that are typically diffusely owned, the ownership and control of corporations is concentrated in East Asia. When ownership is diffuse as in the U.S. and the U.K., agency problems stem from the conflicts of interest between managers and shareholders.…”

Section: The Positive Viewmentioning

confidence: 99%

Do External Auditors Perform a Corporate Governance Role in Emerging Markets? Evidence from East Asia

Fan

Wong²

2001

SSRN Journal

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In emerging markets, the concentration of corporate ownership has created agency conflicts between controlling owners and minority shareholders. Conventional corporate control mechanisms such as boards of directors and takeovers are typically weak in containing the agency problem. This study examines whether external independent auditors could be employed as monitors and as bonding mechanisms to alleviate the agency conflict. Using a broad sample of firms from eight East Asian economies, we document that firms are more likely to employ Big Five auditors when they are more subject to the agency problem imbedded in their ultimate ownership structure. One possible reason that this documented relation between auditor choice and the agency problem is more evident than the inconsistent results using U.S. and U.K. data is that alternative governance mechanisms are limited in East Asia. In addition, among East Asian auditees subject to the agency problem, Big Five auditors charge a higher fee and set a lower audit modification threshold while non-Big Five auditors do not. Taken together, the evidence suggests that Big Five auditors in emerging markets do have a corporate governance role.

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Section: The Positive Viewmentioning

confidence: 99%

Do External Auditors Perform a Corporate Governance Role in Emerging Markets? Evidence from East Asia

Fan

Wong²

2001

SSRN Journal

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“…One possible explanation for the lack of evidence is that the management ownership level of U.S. firms is generally lower and the variation in the separation of ownership and control is much less significant than that of other countries such as the East Asian countries(Claessens, Djankov, and Lang [2000]). Another reason could be that a wide spectrum of corporate governance mechanisms exists in the United States(Klein [2000]).…”

mentioning

confidence: 99%

Do External Auditors Perform a Corporate Governance Role in Emerging Markets? Evidence from East Asia

Fan

Wong

2004

J of Accounting Research

878

582

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In emerging markets, the agency conflicts between controlling owners and the minority shareholders are difficult to mitigate through conventional corporate control mechanisms such as boards of directors and takeovers. We examine whether external independent auditors are employed as monitors or as bonding mechanisms, or both, to alleviate the agency problems. Using a broad sample from eight East Asian economies, we document that firms with agency problems embedded in the ownership structures are more likely to employ Big 5 auditors. This relation is evident among firms that raise equity capital frequently. Consistently, firms hiring Big 5 auditors receive smaller share price discounts associated with the agency conflicts. Also, we find that Big 5 auditors take into consideration their clients' agency problems when making audit fee and audit report decisions. Taken together, these results suggest that Big 5 auditors do have a corporate governance role in emerging markets. Copyright University of Chicago on behalf of the Institute of Professional Accounting, 2005.

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“…3. See Collier and Gregory (1996) and Klein (2000) for useful summaries of the literature on audit committee effectiveness. 4.…”

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confidence: 99%

The Impact of Ownership, Governance and Non‐Audit Services on Audit Fees: Evidence from the Insurance Industry

O’Sullivan

Diacon

2002

Int J Auditing

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This paper adds to the existing audit pricing literature in three respects. First we focus our analysis on insurance companies thereby allowing us to compare the pricing of audits in mutual and proprietary companies. The different external ownership structure of mutual and proprietary insurers provides an ideal environment in which to explore the in uence of external governance on auditors' pricing decisions. Second, we examine the impact of board composition and audit committees on audit fees. Third, we analyse the impact of non-audit fees on audit fees. Data for the study were obtained from both statutory disclosures and a postal questionnaire. Our results suggest that mutual insurers pay signi cantly lower audit fees compared to their proprietary counterparts. We nd some evidence that the existence of an audit committee has a positive impact on audit fees paid by companies in the sample but we nd no evidence that audit fees are sensitive to the composition of audit committees. We nd weak evidence that the provision of non-audit services exerts a positive impact on audit fees but the nature of the non-audit service provided has no signi cant impact. Apart from governance factors, we nd that company size and complexity are the most important determinants of audit pricing in insurance with signi cant price reductions earned by insurers specialising in either general or life business. SUMMARYThe purpose of this study is to improve our understanding of how audit fees are determined. The paper seeks to do this in three ways.First, we focus our study on insurance companies. The different external ownership structure of mutual and proprietary insurers provides an ideal environment in which to explore the in uence of external governance on auditors' pricing decisions. Second, we use a questionnaire survey to obtain data on board composition as well as information on the 94 N. O'Sullivan, S. R. Diacon

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Causes and Consequences of Variations in Audit Committee Composition

Cited by 12 publications

References 46 publications

Do External Auditors Perform a Corporate Governance Role in Emerging Markets? Evidence from East Asia

Do External Auditors Perform a Corporate Governance Role in Emerging Markets? Evidence from East Asia

Do External Auditors Perform a Corporate Governance Role in Emerging Markets? Evidence from East Asia

The Impact of Ownership, Governance and Non‐Audit Services on Audit Fees: Evidence from the Insurance Industry

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